Immediately following the war, he married Elizabeth Evans Rhodes of Philadelphia, and in 1884 began building a baronial estate in the Catoctin Mountains called Gathland (or "Gapland"), near Burkittsville, Maryland. Gathland was built on the site of the Battle of Crampton's Gap, and is in close proximity to the battlefields of South Mountain and Antietam. The estate was comprised of several buildings, including Gapland Hall, Gapland Lodge, the Den and Library Building, and a mausoleum (notable for its inscription of "Good Night Gath"). In 1896, Townsend built the War Correspondents' Memorial Arch, the first such monument to war journalists.
His novels included The Entailed Hat (1884), which fictionalized a true story of a woman named Patty Cannon who kidnapped free blacks and sold them into slavery. Townsend's other works include the short story collection Tales of the Chesapeake (1880) and the novel Katy of Catoctin (1887).
The Gathland estate is now Gathland State Park. Several buildings still stand, including Gapland Hall (which is the park headquarters) and the mausoleum.
Townsend left Gathland in 1911, and died three years later in New York City. He was buried in Philadelphia.